Nio Reverses Course After Sell-Off: Will EV Stock Rally Ahead Of Earnings?

After an extended lean run, Nio, Inc. NIO shares hit a trough Tuesday, weighed down by multiple factors. It appears the selling may have stalled, at least for now.

The Backdrop For Nio: Nio shares have been tracing a downward trend since it peaked at $66.99 on Jan. 9, 2021. The weakness reflected production disruption that was precipitated by supply constraints. Nio fell 35% in 2021, underperforming its domestic peers as well as most U.S. EV stocks.

Given the multiple product launches planned for 2022, it was widely expected that Nio would recover from its predicament in the new year. But it was not to be. Fears of a string of Fed rate hikes, and later on the start of the Ukraine war, sapped the risk appetite of the market. Nio was also caught in the vortex of the market-wide selloff, led by tech stocks.

Ahead of Wednesday's session, Nio shares had lost a whopping 53% year-to-date. 

Source: TradingView

China Concerns Ease: The reversal in sentiment toward Nio's shares seen on Wednesday is in part attributable to across-the-board strength in Chinese stocks. Investors have been fleeing these stocks in droves on fears that they might face the prospect of delisting from the U.S. exchanges.

The SEC released last week a list of five Chinese stocks trading on the U.S. exchanges that were found non-compliant with the "Holding Foreign Companies Accountable Act." The law requires that listed companies make available their audit statements to the U.S. Public Company Accounting Oversight Board. 

With the stocks having already discounted potential de-listings, they presented a bargain buying opportunity for investors.

Reports of Chinese higher-ups rallying behind the companies have also encouraged traders to shed their bearishness. China's official news agency Xinhua reported that the State Council Financial Stability And Development Committee met Wednesday to take stock of the recent upheaval seen in the domestic stock markets, including in Hong Kong.

On Tuesday. Hong Kong's key stock market barometer – the Hang Seng Index – plunged to its lowest level since February 2016.

The FSDC reportedly said the Chinese and U.S. regulators have maintained good communication and have made positive progress in chalking out cooperation programs. It also relayed the Chinese government stance of supporting the domestic companies listed overseas.

Related Link: Nio Analyst Predicts Over 200% Upside For Stock: 'EV Maker Has Clear Growth Prospects In 2022'

Is Nio Priming For Pre-Earnings Run-Up? Nio has several key catalysts lined up for the year. First up, will be the company's earnings report, which is scheduled to be released after the market closes on March 24.

Analysts, on average, expect the company to report a loss of 21 cents per share for the fourth quarter, wider than the year-ago loss of 16 cents per share. Revenues are likely to have increased 49% year-over-year to $1.53 billion.

Nio has already reported that it delivered 25,034 vehicles for the fourth quarter. This represents a 44.3% year-over-year increase and a mere 2.4% quarter-over-quarter increase. The company's October deliveries were hit by the production line revamp done at its Hefei manufacturing plant to accommodate the manufacturing of new vehicle models.

With much of the negative news already priced in, what could move the needle on the stock is commentary regarding the timeline for the planned new vehicle launches and the supply chain.

Adding an element of risk to Nio's outlook is the fresh outbreak of COVID in China that has prompted lockdowns in several parts of China.

The rise in raw material prices in the aftermath of the Ukraine crisis is also expected to pressure Nio's bottom line. Several companies, including Tesla, Inc. TSLA and BYD Company Limited BYDDF, have announced multiple price hikes in response to input cost inflation.

Offsetting these risks would be some company-specific catalysts, including the launch of three new models and its expansion into more European nations.

NIO Price Action: Nio shares were galloping 20.5% higher to $17.99 Wednesday morning. 

Related Link: Nio Bounces Off Bottom Ahead Of Thursday's Hong Kong Listing: What Investors Should Know

Photo courtesy of Nio.